To find out a suitable hurdle rate, to be used as a discount rate for cash inflows, to evaluate various. Willard marriott s root beer stand grew into one of the leading lodging and food service companies lines of business. Do the swot analysis of the marriott corp the cost of capital abridged. Finance division evaluates investments using weighted average cost of capital wacc as a hurdle rate to discount the cash flows for an investment opportunity. Finance 251f351, corporate finance, marriott corporation. Willard marriotts root beer stand grew into one of the leading lodging and food service companies lines of business.
Book marriott corporation the cost of capital case solution marriott corporation case study solution marriott corporation case study solution marriott case study the 4 disciplines of execution see how marriott used the 4 disciplines of execution to focus on and execute their most wildly important goals while pdf marriott case study solution. Marriot use cost of capital as the hurdle rate minimum rate of return required to accept the project to discount future cash flows for the investment projects of the three lines of business lodging, contract services and restaurants. The cost of capital abridged 4 in april 1988, marriotts unsecured debt was arated. The cost of capital abridged harvard case study solution and hbr and hbs case analysis. How does marriott use its estimate of cost of capital. Marriott corp the cost of capital abridged 10 steps. Marriott international generates higher returns on investment than it costs the company to raise the capital. The cost of capital relies on the mode of financing that has been. After calculating the riskfree rate and premium for marriott as a whole, the beta of 1. Marriott uses the weighted average cost of capital wacc to measure the opportunity cost for investments. Marriott corp the cost of capital abridged harvard case study solution and hbr and hbs case analysis. As of today 20200519, marriott internationals weighted average cost of capital is 9. The cost of capital case study solution, marriott corp.
A worldwide operator and franchiser of hotels and related lodging facilities, marriott international marriott owns more than 2600 lodging properties in the us and operates in more than 69 countries. Estimation of equity beta o we mentioned in class that we need to use target debt ratio in the estimation of the cost of capital. Background as the vice president of project finance of marriott corporation, we are conducting an analysis of our company marriott corporation for calculating the hurdle rates at each of our firms three divisions. Simon gervais fall 2011 term 2 in this case, you will use the capm model to compute the cost of capital for a whole company and for each of its divisions. Thus, for estimating overall debt cost for mc, average of the individual debt costs of each of the division is taken. Project evaluation solved by using beta regressions and weighted average cost of capital wacc comparisons.
What type of investments would you value using marriott s. Marriott corporation relied on measuring the opportunity cost of capital for investments by utilizing the concept of weighted average cost of capital wacc. The cost of capital excel file, subjects covered capital costs capital structure cash flow valuation by richard s. Click to edit master subtitle style october 14, 2008. Solved harvard business school 9289047 rp os t rev. You are responsible for handing in written answers to the following questions drawn from the marriott case. Using weighted capital wacc formula and the mechanisms of its.
Aug 02, 2016 marriott corporation relied on measuring the opportunity cost of capital for investments by utilizing the concept of weighted average cost of capital wacc. The cost of capital abridged 9289047 required 2 american home products corporation 9283065 required 3 masseyferguson ltd. Marriott corporation case solution cost of capital. Marriott corp the cost of capital abridged case solution, marriott corp the cost of capital abridged case analysis, marriott corp the cost of capital abridged case study solution, gives students the opportunity to learn how the company uses cost capital asset model capm to calculate the cost of capital for each of its divisions. A culture of risk beyond petroleum a british petroleum plc and john browne. Marriott corp cost of capital case solution and analysis. Im lily jacob mba student for harvard university provide you case study a grade paper marriott corporation. You can work with others on this assignment, but each individual must hand in their own set of answers. The cost of capital abridged, concentrates on making decisions based on capital asset pricing model capm and the weighted average cost of capital wacc to measure the opportunity cost.
Marriott corporation corporate finance presentation. Marriott corporation k abridged free download as excel spreadsheet. Focus on the following zero down on the central problem and two to five related problems in the case study. Marriott corporation cost of capital financial markets. The year before, marriotts sales grew 24%, sales and earnings per share had doubled the last 4 years and the roe stood at 22%. The cost of capital abridged in april 1988, dan cohrs, vice president of project finance at the marriott corporation, was preparing his annual recommendations for the hurdle rates at each of the firms three divisions. Gives students the opportunity to explore how a company uses the capital asset pricing model capm to compute the cost of capital for each of its div. The use of weighted average cost of capital wacc formula and the mechanics of applying it are stressed.
The cost of capital abridged are the four components of marriot s financial strategy consistent with its growth objective. The cost of capital abridged 4 in april 1988, marriott s unsecured debt was arated. Simon gervais spring 2010 term 1 in this case, you will use the capm model to compute the cost of capital for a whole company and for each of its divisions. In april 1988, vp of project finance, dan cohrs suggested that the divisional hurdle rates at the company would have a key impact on their future financial and operating strategies. Finance 351, corporate finance, marriott corporation, hint. Gives students the opportunity to explore how a company uses the capital asset pricing model capm to compute the cost of capital for each of its divisions.
The idea behind having you work on these case studies is to make you apply the concepts learnt in class to. Dan cohrs, the vice president of finance of marriott corporation, had to deal with making recommendations for the hurdle. Capm to compute the cost of capital for each of its divisions. Marriott corporation cost of capital 2876 words 12 pages. Assignment computing cost of capital of firm and each division examining the central role. Marriott corp the cost of capital abridged mw petroleum corp. Next is the crucial element of the cost of capital and the key objective of minimizing it. The cost of capital october 14, 2008 nroop bhavsar prerak shah 2.
Marriott corp the cost of capital abridged case solution. We use weighted average cost of capital wacc as the hurdle rate. Marriot corporation the cost of capital abridged case solution since the publicly traded information for the comparables of contract services division is not available therefore, its asset beta could be calculated from the already calculated asset betas of marriot, restaurant division and lodging division based on the weigh tage of the. The opportunity to explore how a company uses the capital asset pricing model capm to compute the cost of capital for each of its divisions. Marriott corporation the cost of capital case study sample im lily jacob mba student for harvard university provide you case study a grade paper marriott corporation. A, spanish version british petroleum plc and john browne. Jesse galindo, sulabh gupta, maggie jones, wale olukanmi marriott corporation.
Finance, accounting and control marriott corporation. Marriott has defined a clear financial strategy containing four elements. Wacc is calculated using the 1987 financial data provided in the marriot corporation. At the time, marriott had three main lines of business, lodging, contract services and restaurants, with lodging generating about 51% of companys profits. You may use 34% as the corporate tax rate after the 1986 tax reform act. Marriott corp the cost of capital abridged hbs 9 289 047.
Marriott corp the cost of capital abridged harvard business. Marriott corp the cost of capital abridged case study solution, marriott corp the cost of capital abridged case study analysis, subjects covered capital costs by richard s. Using weighted capital wacc formula and the mechanisms of its implementation cost means are stressed. Marriott corporation case analysis, marriott corporation case study solution, marriott corporation xls file, marriott corporation excel file, subjects covered financial management strategy formulation by diana harrington source. Marriott corp cost of capital case solution and analysis, hbr. The cost of debt was then calculated by determining the proper government rate and debt rate premium. Since its foundation in 1927 marriott corporation grew into one of the leading lodging and food services in the us. Finance 351, corporate finance, marriott corporation, hint sheet.
The year before, marriott s sales grew 24%, sales and earnings per share had doubled the last 4 years and the roe stood at 22%. The cost of capital abridged the purpose of this memo is to estimate the weighted average cost of capital wacc for marriott corporation and its three divisions, as well as explain the logic behind the calculations. The cost of capital case study sample fee free download word file and pdf. Harvard business case studies solutions assignment help. Marriott corporation cost of capital 2876 words bartleby. Scribd is the worlds largest social reading and publishing site. The cost of capital case study sample fee free download word file and pdf click this. The cost of capital abridged dan cohrs, vice president of marriott corporations project finance, prepared his annual recommendations for the hurdle rates. Marriott corp the cost of capital abridged by richard s. Culture of risk beyond petroleum a pioneer corporation. Step 4 swot analysis of marriott corp the cost of capital abridged once you finished the case analysis, time line of the events and other critical details. Using this method, the overall debt cost for mc is found to be 2. Marriott corporation the cost of capital case study sample. There is an immediate 100% grade deduction for submitting group.
As a highquality corporate risk, marriott could expect to pay a spread above the current government bond rates. In other words, the cost of capital is the cost of utilizing owners or creditors funds. Capital structure decisions marriott corporation and gary. Jan 09, 2018 im lily jacob mba student for harvard university provide you case study a grade paper marriott corporation. The cost of capital simrith sidhu, amyjane miocevich, jacques rousset, jing tao task one.
The cost of capital abridged op yo in april 1988, dan cohrs, vice president of project finance at the marriott corporation, was preparing his annual recommendations for. First is a discussion of marriott s capital structure and the importance of debt and equity. As of today 20200503, marriott internationals weighted average cost of capital is 8. It based the debt cost for each division on an estimate of the divisions debt cost as an independent company. Marriott corp the cost of capital abridged case solution and. Marriott corp the cost of capital abridged case analysis. Stay connected to your students with prezi video, now in microsoft teams. Marriott international earns returns that do not match up to its cost of capital. Marriott corporation case essay example graduateway. The cost of capital abridged, concentrates on making decisions based on capital asset pricing model capm and the weighted average cost of capital wacc to measure the opportunity cost for investments. Taking a step back, there is an examination of how firms set their capital structure in practice, looking at the internal, external, and cross. At the time, marriott had three main lines of business, lodging, contract services and restaurants, with lodging. The use of weighted average cost of capital wacc formula and the mechanics of the application they are stressed. The cost of capital the four components of marriotts financial strategy are to manage rather than own hotel assets, invest in projects that increase shareholder value, optimize the use of debt in capital structure, and repurchase undervalued shares.
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